On 14 July 2006, China and Hong Kong signed an “Arrangement on Reciprocal Recognition and Enforcement of Judgments in Civil and Commercial Matters by the Courts of the Mainland and of the Hong Kong Special Administrative Region Pursuant to Choice of Court Agreements between Parties Concerned” (Arrangement).
The objective of the Arrangement is to establish a convenient mechanism for the reciprocal enforcement of judgments made by the courts of mainland China or Hong Kong.
Not all judgments
The Arrangement will only apply to judgments for liquidated sums of money where the underlying dispute has arisen from a commercial contract. It will not include judgments arising from other types of contracts such as employment contracts nor will it include judgments arising from tort or family law cases. It will also not be possible to enforce other judicial remedies such as injunctions.
In order to avail themselves of the Arrangement, the parties must have agreed in writing that a court of mainland China or Hong Kong has sole jurisdiction for resolving any dispute.
Only designated courts
Only judgments of certain courts will be able to be enforced pursuant to the Arrangement. In the case of mainland China, the judgment must have been made by an Intermediate People’s Court or above (or by an authorised Basic People’s Court) and in the case of Hong Kong the judgment must have been made by the District Court or above.
Must be a final judgment
Prior to the Arrangement it has been difficult to enforce a mainland judgment in Hong Kong as pursuant to its common law system only 'final judgments' can be enforced. Mainland judgments were not considered ‘final judgments’ due to the trial supervision system whereby original courts can re-open cases for review on broad grounds. In light of this, it has been agreed that where the trial supervision procedure is invoked in the mainland after an application for enforcement of the first instance judgment has been made in Hong Kong, the Hong Kong court may suspend the recognition and enforcement procedures for that case. It has also been agreed that the ‘re-trial’ will be conducted by a higher mainland court.
Short Time Limit
It is important to note that the Arrangement imposes a relatively short time limit for making an enforcement application. Where one or both parties are natural persons the time limit will be one year, however, if both parties are companies the time limit will be only six months.
Grounds for refusal
Judgments will not be automatically enforced. The Arrangement provides that a court will refuse to enforce a judgment in the following circumstances:
- the choice of court agreement is invalid;
- the judgment has been wholly satisfied;
- the court of the place where enforcement of the judgment is sought has exclusive jurisdiction over the case according to the law of the place of enforcement;
- the judgment debtor was not given proper notice of the proceeding or sufficient time to prepare its defence;
- the judgment was obtained by fraud;
- a judgment or arbitral award on the same cause of action between the parties has already been made in the jurisdiction where enforcement is sought; or
- recognition or enforcement of the judgment would be contrary to the social and public interest of the mainland or contrary to the public policy of Hong Kong.
When will the Arrangement come into force?
The Arrangement is not yet effective. It will come into force when the Supreme People's Court has promulgated a judicial interpretation giving it effect and reciprocal enabling legislation has been introduced in Hong Kong. It is likely that these events will occur in early 2007. The Arrangement will not have retrospective application.
What does it mean for Hong Kong?
The Arrangement promises to be significant for Hong Kong. Once it comes into effect, foreign companies who are familiar with its common law system will have the option to resolve disputes in Hong Kong rather than pursue claims through unfamiliar court processes in the mainland or seek to enforce arbitration clauses.
It will be very important to advise clients of this enforcement mechanism when drafting contracts and include an appropriate jurisdiction clause as it promises to become a convenient and efficient way to obtain relief against mainland companies at least in relation to liquidated damages or debts.
There are several mainland/Hong Kong conflicts of laws issues to take into account when drafting jurisdiction clauses for the purposes of the Arrangement and the Asian Dispute Resolution team would be happy to assist.